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Euro pushes higher versus yen as ECB rate-hike odds rise
EUR/JPY was around 181.7, supported by near 90% market odds for an ECB September hike, while the yen stayed under pressure amid Japan fiscal concerns.
EUR/JPY traded around 181.70 on Monday, up 0.44% on the day, as optimism about further European Central Bank tightening outweighed pressure on the Japanese yen, according to FXStreet.
Markets are increasingly leaning toward more ECB hikes, with Deutsche Bank analysts estimating about a 90% chance of an interest rate increase at the ECB’s September meeting. Reuters also reported that traders are pricing in more than two additional rate increases, with hikes fully priced by October and April, supported by Eurozone inflation and growth data including July inflation at 2.9% year over year.
FXStreet said the yen remained weak despite last week’s coordinated currency intervention by Japanese and US authorities. Bloomberg cited about $34 billion spent to support the yen, and Japan’s finance minister reiterated that authorities were ready to intervene again if needed.
Despite the intervention, attention shifted back to Japan’s deteriorating fiscal outlook, including a proposal by the Liberal Democratic Party to temporarily cut the food consumption tax from 8% to 1% starting April 2027 and provide roughly ¥600 billion in annual cash transfers. With Japan’s borrowing costs still below those of other developed economies after the BoJ raised its policy rate to 1% in June, FXStreet said the interest rate gap continued to support carry trades that weigh on the yen.